Regulators of G-protein Signaling (RGS) proteins downregulate signaling by heterotrimeric G-proteins by accelerating GTP hydrolysis on the Galpha subunits. Palmitoylation, the reversible addition of palmitate to cysteine residues, occurs on several RGS proteins and is critical for their activity. For RGS16, mutation of Cys-2 and Cys-12 blocks its incorporation of [3H]palmitate and ability to turn-off Gi and Gq signaling and significantly inhibited its GTPase activating protein (GAP) activity toward a Galpha subunit fused to the 5-hydroxytryptamine receptor 1A, but did not reduce its plasma membrane localization based on cell fractionation studies and immunoelectron microscopy. Palmitoylation can target proteins, including many signaling proteins, to membrane microdomains, called lipid rafts. A subpopulation of endogenous RGS16 in rat liver membranes and overexpressed RGS16 in COS cells, but not the nonpalmitoylated cysteine mutant of RGS16, localized to lipid rafts. However, disruption of lipid rafts by treatment with methyl-beta-cyclodextrin did not decrease the GAP activity of RGS16. The lipid raft fractions were enriched in protein acyl transferase activity and RGS16 incorporated [3H]palmitate into a peptide fragment containing Cys-98, a highly conserved cysteine within the RGS box. These results suggest that the amino-terminal palmitoylation of an RGS protein promotes its lipid raft targeting that allows palmitoylation of a poorly accessible cysteine residue that is critical for RGS16 and RGS4 GAP activity. Palmitoylation is an important post-translational modification used by cells to regulate protein activity. The rapid and reversible addition of palmitate to cellular proteins facilitates protein-protein interactions or targets proteins to a specific subcellular fraction. The regulator of G protein signaling (RGS)16 protein (RGS16) shares a number of conserved cysteine residues with RGS4 and RGS5 that undergo palmitoylation. N-terminal cysteine residues (Cys2, Cys12) in RGS4 and RGS16 regulate protein function, and a cysteine residue in the RGS box (Cys95 in RGS4) may modulate the GAP activity of RGS4 and RGS10. We investigated palmitoylation of RGS16 at residue Cys98 to determine its role in RGS16 localization and GTPase accelerating (GAP) activity. Mutation of RGS16 Cys98 to alanine diminished the ability of transfected RGS16 to promote serotonin-induced GTPase activity of a GPCR/Galpha fusion protein in mammalian cell membranes as well as its negative regulation of adenylyl cyclase inhibition induced by a Gi-linked GPCR in HEK293T cells. The C98A mutation of RGS16 had no discernable effect on the localization of RGS16 to membranes or on the GAP activity of recombinant RGS16 toward purified G protein alpha subunits. Most importantly, enzymatic palmitoylation of RGS16 by a partially purified protein acyltransferase (pPAT) resulted in internal palmitoylation on residue Cys98 and a dramatic, time-dependent increase in the GAP activity of RGS16 on membranes expressing the GPCR/Galpha fusion protein. These results suggest that palmitoylation of Cys98 is critical for the normal in vivo function of RGS16. Galpha 13 stimulates guanine nucleotide exchange factors (GEFs) for Rho, such as p115RhoGEF. Activated Rho induces numerous cellular responses including actin polymerization, serum response element (SRE)-dependent gene transcription, and transformation. P115RhoGEF contains a Regulator of G protein Signaling domain (RGS box) conferring GTPase activating protein (GAP) activity toward G alpha 12 and 13. In contrast, classical RGS proteins (such as RGS16 and RGS4)exhibit RGS domain-dependent GAP activity on Galpha i and Galpha q, but not Galpha 12/13. Here we show that RGS16 amino-terminus binds Galpha 13 directly, resulting in Galpha 13 translocation to detergent-resistant membranes (DRMs) and reduced p115RhoGEF binding. RGS4 does not bind Galpha 13 or attenuate G alpha 13-dependent responses, and neither RGS16 nor RGS4 affects Galpha 12-mediated signaling. These results elucidate a new mechanism whereby a classical RGS protein regulates Galpha 13-meidated signal transduction independently of the RGS box. Agonists stimulated high-affinity GTPase activity in membranes of HEK293 cells following coexpression of the alpha 2A-adrenoceptor and a pertussis toxin-resistant mutant of Go1 alpha. Enzyme kinetic analysis of Vmax and Km failed to detect regulation of the effect of agonist by a GTPase activating protein. This did occur, however, when cells were also transfected to express RGS4. Both elements of a fusion protein in which the N-terminus of RGS4 was linked to the C-terminal tail of the alpha 2A-adrenoceptor were functional, as it was able to provide concerted stimulation and deactivation of the G protein. By contrast, the alpha 2A-adrenoceptor-RGS4 fusion protein stimulated but did not enhance deactivation of a form of Go1 alpha that is resistant to the effects of regulator of G protein signaling (RGS) proteins. Employing this model system, mutation of Asn128 but not Asn88 eliminated detectable GTPase activating protein activity of RGS4 against Go1 alpha. Mutation of all three cysteine residues that are sites of post-translational acylation in RGS4 also eliminated GTPase activating protein activity but this was not achieved by less concerted mutation of these sites. These studies demonstrate that a fusion protein between a G protein-coupled receptor and an RGS protein is fully functional in providing both enhanced guanine nucleotide exchange and GTP hydrolysis of a coexpressed G protein. They also provide a direct means to assess, in mammalian cells, the effects of mutation of the RGS protein on function in circumstances in which the spatial relationship and orientation of the RGS to its target G protein is defined and maintained.